Stocks Rise on Greek Deal as Bonds Show Tepid Welcome; Oil Drops

(Bloomberg) -- U.S. stocks climbed and European equities had the biggest four-day rally in three years on Greeces bailout agreement, while the regions bond markets signaled caution. Oil dropped as Irandeal loomed.

The Standard & Poors 500 Index rose 1% at 10:18 a.m. in New York. The Stoxx Europe 600 Index jumped 1.8%, bringing its four-day surge past 6%, amid optimism the breakthrough will remove an obstacle to Europes recovery. Bonds fell in Spain and Italy, while Treasuries retreated a third day. The euro slid on speculation the deal may clear the way for higher U.S. interest rates.

While euro-area leaders reached an agreement on the countrys aid, Greek lawmakers have until Wednesday to pass key creditor demands, including streamlining value-added taxes, broadening the tax base and curbing pension costs. The crisis in Greece and a rout in Chinese equities had prompted traders to speculate the Fed wouldnt raise rates till next year, based on a Morgan Stanley index.

Its great hearing Greece is not going over the deep end, at least not this week, Rob Lutts, chief investment officer at Salem, Massachusetts-based Cabot Wealth Management Inc., said via phone. Last weeks volatility was all on the back of whats going on in Greece, as well as in China, and today its pretty apparent the path is one of resolution.

European equities rallied on the deal, with about 10 shares rising for every one that declined in the Stoxx 600. Banks led gains. Germanys DAX Index pushed its four-day advance to 7.2%, the most since December 2011, while Portugals PSI 20 Index and Frances CAC 40 Index each surged at least 8.4% in the period.

GREECE RALLY

The S&P 500 advanced a third day after falling to the lowest level since March 11. The gauge is about 2% below its last record from May 21.

As the Greek crisis nears its conclusion, U.S. equity investors will refocus attention toward economic data for clues on when the Feds policy. Reports this week include retail sales, industrial production, housing starts and consumer sentiment.

Fed Chair Janet Yellen said Friday she still expects to raise interest rates this year and repeated that the subsequent pace of increases will be gradual. She will deliver her semiannual testimony to Congress on Wednesday and Thursday.

Its a no-brainer right now with this knee-jerk response, Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. Its good that a disaster maybe has been averted. We had a fairly decent rebound so its more muted here than anywhere else. Were in earnings season now, we need to see evidence of a recovery.

As Tsipras moves to convince parliament to endorse the deal he accepted, the scale of the remaining challenges set in. The country will extend a bank holiday and capital controls today, a Finance Ministry official said. The European Central Banks Governing Council decided to leave its Emergency Liquidity Assistance ceiling unchanged, a person familiar with the matter said.

Italys 10-year bonds halted a four-day run of gains that had been fueled by optimism a Greek dealwould be reached. The yield was four basis points higher at 2.17%. Spains 10- year bond yield increased five basis points to 2.18%.

SOMEWHAT CAUTIOUS

There are plenty of reasons for the market to remain somewhat cautious, said John Davies, a U.S. interest-rate strategist at Standard Chartered Plc in London. This agreement that finally came out today, isnt some sort of all encompassing-crisis-resolving agreement by any stretch of imagination.

The euro dropped 1% to $1.1055. Its biggest loss came versus the U.K. pound, which jumped 1.1% to 71.14 pence per euro. The Bloomberg Dollar Spot Index added 0.4%, reversing the drop on July 10.

Oil fell as investors weighed the prospects of an imminent nuclear deal between Iran and world powers that could increase the nations crude exports into an oversupplied market.

West Texas Intermediate dropped 1.4% to to $52 a barrel, extending the grades biggest weekly drop since March. Brent fell 1.7% to $57.76.

The MSCI Emerging Markets Index added 0.8%, poised for the biggest three-day advance since Dec. 22. Turkeys lira gained 0.4% versus the dollar, while Polands zloty jumped 0.8% against the euro. Russias ruble fell for the first time in three days as oil declined.

The Shanghai Composite Index rallied 2.4%, extending its three-day gain to 13% after unprecedented government intervention to end a rout that wiped almost $4 trillion of value from the countrys equities. The number of halted companies fell by 408 from Friday to 1,045, or 36% of overall listings on mainland exchanges.